Penalties for Failing to Furnish Schedule K-1s: How IRC 6722 Applies to Partnerships and S Corporations

Most owners know the partnership or S corporation return has a deadline. Fewer realize that every Schedule K-1 sent to an owner is a separate legal obligation with its own penalty. Send ten K-1s late and you may be looking at ten penalties, on top of whatever you owe for filing the return late.

Here is how that penalty works and how to keep it from growing.

Why a K-1 Is a "Payee Statement"

The penalty for failing to furnish correct payee statements is in IRC 6722. Whether a K-1 is covered depends on the definition in IRC 6724(d)(2)(A), which includes any statement required to be furnished under IRC 6031(b) or (c) (partnerships and nominees) or IRC 6037(b) (S corporations).

The regulations remove any doubt. Treas. Reg. 301.6722-1(e)(2)(i) identifies these statements as, generally, Schedule K-1 (Form 1065) for partnerships and Schedule K-1 (Form 1120-S) for S corporations. Treas. Reg. 1.6031(b)-1T(d) also points to IRC 6722 as the penalty for failing to furnish partner statements.

What about IRC 6721, the penalty for failing to file correct information returns with the IRS? The list of "information returns" in IRC 6724(d)(1) does not include IRC 6031 or IRC 6037. The K-1 copies that belong with the entity's own return are part of that return. If they are missing or incomplete, the exposure is generally the incomplete-return penalty under IRC 6698(a)(2) or IRC 6699(a)(2), discussed in our page on the Form 1065 late filing penalty.

When the K-1 Is Due

• Partnerships: Under Treas. Reg. 1.6031(b)-1T(b), the K-1 must be furnished on or before the day the partnership return is required to be filed, determined with regard to extensions.
• S corporations: IRC 6037(b) requires the K-1 information to be furnished on or before the day the return for the year was filed.

A valid Form 7004 extension therefore moves the partnership's K-1 deadline too. A late extension request does not. Our guide to partnership and S corporation filing deadlines covers the timing in detail.

What Counts as a Failure

IRC 6722(a)(2) describes two kinds of failure:

1. Not furnishing the statement to the owner by the date it is due.
2. Furnishing it without all the required information, or with incorrect information.

So a K-1 that arrives on time with the wrong numbers can be penalized just like one that never shows up. Treas. Reg. 301.6722-1(a)(1) limits the penalty to one per statement even if a single K-1 has several errors.

Not every mistake counts. Under Treas. Reg. 301.6722-1(b), an "inconsequential error or omission" is not a failure if it cannot reasonably be expected to prevent the owner from receiving correct information and reporting it. But the regulation lists errors that are never inconsequential, and a dollar amount is first on that list (subject to the de minimis rule below).

The Penalty Amounts

The statute sets the base penalty at $250 per statement and indexes it for inflation under IRC 6722(f). Rev. Proc. 2024-40 gives the amounts for statements required to be furnished in 2026, and the 2025 Form 1065 and Form 1120-S instructions repeat the main figure:

Statements required to be furnished in 2026	Per K-1	Annual cap, gross receipts over $5 million	Annual cap, gross receipts $5 million or less
General rule	$340	$4,098,500	$1,366,000
Corrected within 30 days of the due date	$60	$683,000	$239,000
Corrected after 30 days but by August 1, 2026	$130	$2,049,000	$683,000
Intentional disregard	Greater of $680 or 10% of the items required to be reported	No cap	No cap

For statements required to be furnished in 2027, Rev. Proc. 2025-32 keeps the general per-statement amount at $340 and the reduced amounts at $60 and $130, raises the intentional disregard minimum to $690, and raises the annual caps (for example, $4,191,500 under the general rule for larger businesses and $1,397,000 for businesses with gross receipts of $5 million or less).

The lower caps for smaller businesses come from IRC 6722(d), which borrows the gross receipts test in IRC 6721(d)(2). As the Rev. Proc. tables describe it, that test looks at average annual gross receipts for the most recent three taxable years.

A quick example: a partnership with 12 partners that furnishes every K-1 two months late in 2026, with no correction in the first 30 days, may face 12 times $130, or $1,560, if the K-1s go out by August 1. If they go out after August 1, the figure becomes 12 times $340, or $4,080.

The De Minimis Safe Harbor

IRC 6722(c)(3) provides a safe harbor for small dollar errors. If no single amount on the statement is off by more than $100, and no amount of tax withheld is off by more than $25, no correction is required and the statement is treated as correct.

There is a catch. Under Treas. Reg. 301.6722-1(d)(3), the person receiving the statement can elect out of the safe harbor and demand a corrected statement. The safe harbor also does not apply in cases of intentional disregard.

Getting the Penalty Removed

Reasonable cause under IRC 6724

IRC 6724(a) waives the penalty if the failure was due to reasonable cause and not willful neglect. Treas. Reg. 301.6724-1 sets out the test, and it has two parts. First, you need either significant mitigating factors or events beyond your control. Second, you must show you acted in a responsible manner both before and after the failure.

Mitigating factors include that the entity was never required to furnish this type of statement before, or that it has an established history of compliance. Events beyond your control include unavailable business records, certain actions of an agent, and failures by another person who was supposed to supply necessary information.

Acting responsibly, under Treas. Reg. 301.6724-1(d), includes requesting extensions when practicable and fixing the failure promptly. The regulation says a correction is ordinarily prompt if made within 30 days after the impediment is removed or the failure is discovered. Fast correction helps twice: it can lower the penalty tier and support the waiver request. See our guide on reasonable cause for late entity returns.

Do not count on First Time Abate here

The IRM's First Time Abate provision, IRM 20.1.1.3.3.2.1, lists the late-filing penalties under IRC 6651, IRC 6698(a)(1), and IRC 6699(a)(1), along with failure-to-pay and failure-to-deposit penalties. It does not list IRC 6722. FTA may still help with the entity's late filing penalty; see First Time Abatement for entity returns. For more on penalty relief generally, this overview of IRS penalty abatement is a useful starting point.

A Note for Partnerships Fixing K-1s After the Fact

Correcting a K-1 is not always as simple as mailing a new one. IRC 6031(b) states that K-1 information may not be amended after the due date of the partnership return, with exceptions that include partnerships that elected out of the centralized audit regime and the procedures for administrative adjustment requests. If you need to fix a K-1 after the deadline, read what to do with an amended or late K-1 before you send anything.

Under IRC 6724(b), these penalties are paid on notice and demand in the same manner as tax. If your entity has received a K-1 penalty notice, call the Law Offices of Darrin T. Mish, P.A. in Tampa, Florida at 813-229-7100. Ten small penalties are still ten penalties.